8Making GPG reporting regulations work

271.New regulations compelling organisations with more than 250 employees to publish their gender pay gap figures are a central plank of the Government’s strategy to reduce the gender pay gap in a generation. The Secretary of State for Equalities told us:

They are a very important part of tackling the gender pay gap for the reasons we have already discussed, which are transparency, concentrating the mind and helping people make employment decisions.206

272.Gender pay gap reporting regulations are included under section 78 of the Equality Act 2010, but have not been enacted to date. However, an amendment in the Small Business and Enterprise Act 2015 stipulated that:

The Secretary of State must, as soon as possible and no later than 12 months after the passing of this Act, make regulations under section 78 of the Equality Act 2010 for the purpose of requiring the publication of information showing whether there are differences in the pay of males and females.207

The Act was passed on 26 March 2015 under the Coalition Government.

273.It is therefore incumbent on the Government to bring gender pay gap reporting regulations into force. In the summer of 2015 a consultation was held and on February 12 2016 draft regulations were published. These regulations apply to private and non-profit organisations with 250 employers or more and stipulate that:

organisations will have to publish their gender pay gap figure for both mean and median pay levels annually;

the figure published does not have to be broken down by age, part-tine status, or any other factor;

there are no enforcement mechanisms to ensure organisations publish gender pay gap figures other than the possibility of publicising the identities of organisations that don’t comply;

organisations will have to publish the number of men and women in each salary quartile of their pay range.

How much impact will reporting have?

274.The evidence we received suggests that reporting regulations are largely welcome and can play a part in concentrating organisations’ minds on where pay gaps exist and how they might be reduced. However, the limitations of pay gap reporting were emphasised by many witnesses, including Duncan Brown, from the Institute for Employment Studies:

It will be a useful stimulus to action but it is not a silver bullet. It highlights issues that other measures are needed to address208

275. Several organisations pointed out the difference between reporting on a gender pay gap and taking action to remedy the gap. The CIPD were concerned that:

The proposals in themselves …will not change the gender pay gap. Any potential remedy to the gap is only possible if organisations learn why such a gap exists, and subsequently implement a sustainable strategy that will tackle the pay differential.209

276.Another concern raised about the reporting regulations focused on widespread misunderstanding of the gender pay gap itself, as explained in Chapter 1. The CBI warn that:

It is vital that the difference between equal pay and the gender pay gap is understood, otherwise businesses run the risk of facing an increased level of unwarranted and misunderstood equal pay claims when they report a gender pay gap in their company.210

It is also important to be clear that gender pay gap figures are not necessarily correlated with how well an organisation treats women. For example, an organisation could have no gender pay gap because it employs no women. Conversely, a male dominated organisation which increases the number of female apprentices it employs would see a very high gender pay gap.

Could the regulations have more impact?

277.We heard a number of suggestions for improving the impact that gender pay gap reporting could have. These included: breaking down pay gap figures by age and part-time status; mandating action where gender pay gaps exist; and reducing the threshold for organisations covered by the regulations.

Reporting data by age and part-time status

278.The data clearly show that older women and those who work part-time are most affected by the gender pay gap. Current proposals on reporting regulations do not include a breakdown of pay gap data on those grounds. In its response to the original gender pay gap consultation, the Government acknowledged the role such a breakdown could play, but did not mandate it:

Calculating separate gender pay gap figures for full-time and part-time employees can provide information that is useful for those employers with a large part-time workforce (i.e. as women are much more likely than men to work part-time). However, we agree that publishing separate figures for full-time and part-time workers may not be useful or appropriate for many employers or employees.211

279.The evidence we heard strongly supported breaking gender pay gap figures down by age and part-time status. As Michael Newman of the Discrimination Law Association told us:

We know that there is a difference in terms of the gender pay gap between part-time and full-time workers. We know that there is a difference in terms of age categories. The only way that that can be measured is by feeding that into the pay reporting requirements.212

280.Both Shelia Wild, from the Equal Pay Portal, and the CIPD argued that breaking down the data would give organisations the impetus needed to tackle the particular issues faced by older women and those working part-time.

281.The evidence is clear that women over 40 and those working part-time experience the most pronounced gender pay gap. Breaking down gender pay gap statistics by age and part-time status will help organisations to understand and address any issues faced by women in these groups.

Turning reporting into action

282.Although organisations with more than 250 employees will be mandated to report on their gender pay gap annually, there is nothing in the regulations to mandate them taking action if they find a pay gap. The reliance on voluntary action to bring about change was raised by many responding to our inquiry including the Scottish Women’s Convention:

Beyond publication of the information, there is no obligation for a company to do anything about any gender pay gap which occurs within their organisation. Many women have commented on the fact that this requirement is “nothing more than a tick-box exercise”, which will, in real terms, has very little impact on the pay gap. This is particularly the case for older women, who are often undervalued within workplaces.213

283.One suggestion for ensuring action is taken was the idea of mandatory narratives, or action plans. Close the Gap, the University and College Union and the Fawcett Society were amongst those calling for these measures. The TUC said organisations should be required to publish an evidence-based analysis of the main causes of the gender pay gap, as well as outlining the action they would take to narrow it, and reporting on progress against that. They argued that this worked elsewhere:

Examples of gender pay reporting from other countries like Finland, Germany, Sweden and France highlight that this action-based approach is more common than a requirement to just publish statistics.214

284.The specific issue of how well voluntary action would work in low paid, highly feminised sectors was raised by the Discrimination Law Association (DLA). It pointed out that the system of pay gap reporting currently proposed is based on the premise that organisations will compete against each other to drive down their gender pay gap. However, this is much less likely to occur in sectors like cleaning, retail and care where many older women workers are concentrated. According to the DLA, competition is only likely to arise “in the same sector, and only where there is competition for the same pool of employees, who have relative freedom to choose their employer.”215 The evidence shows that women working part-time in lower paid sectors face constrained employment choices and are therefore less likely to benefit from these measures.

285.There was some support from business for publishing narratives alongside pay gap figures, but a strong reaction against this being mandatory. As Tim Thomas from the EEF explained:

From an employer’s perspective, yes, we would like to see a narrative included. We would like to see employers encouraged to provide a narrative. We would like to see Government using guidance to indicate what the narrative could include, but we do not think it is something you could or should prescribe in regulation.216

286.The Government has said it will “strongly encourage “employers to provide an accompanying explanation of their figures but that “requiring employers to provide this contextual information may be considered overly burdensome.”217

287.Whether narratives are mandatory or not, the key point arising from the evidence we gathered was that organisations need to see publication of their gender pay gap as the start of a process, rather than an end in itself. As the CBI pointed out:

If it is to make a real difference, reporting must be a prompt for firms to question why their gap exists and develop a tailored plan to tackle it that will be effective in their workplace.218

288.If gender pay gap reporting is to have any impact it must help employers understand why pay gaps exist and lead to action to address these problems. It must be seen as the beginning of a process rather than the culmination of a tick box exercise.

Reducing the threshold from 250

289.Many of the submissions we received called for the threshold for the gender pay gap reporting guidelines to change so organisations with fewer than 250 employees would be covered. The following table summarises some of those responses:

Table 4: Gender pay gap reporting guidelines

Organisation

Recommendation

Science Council

Should apply to organisations with fewer than 250 (58% scientists work in organisations with fewer than 250 employees)

Family and Childcare trust

Government should look into extending to organisations with fewer than 250

Close the Gap

Should apply to smaller organisations where more women work

TUC

Threshold should be 150 to mirror Public Sector Equality Duty

Royal Institute for British Architects

Organisations with more than 30 employees like Finland

UNISON

Mandatory pay reporting regardless of size of organisation

Young Women’s Trust

Extend to SMEs in all sectors

290.One argument made against a threshold of 250 employees is that this it excludes small and medium sized enterprises (SMEs) which account for 99.9% of private sector companies in the UK, and the majority of third sector organisations, (62% of these have fewer than 50 employees).219 The Government predicts the current regulations will only cover 34% of the UK workforce.

291.It is also the case that the gender pay gap is more pronounced in smaller organisations. Data from the ONS shows that the highest GPG in 2015 for all employees (full time and part-time), and for full time employees only, was in organisations with 20-99 employees.

Source: Annual Survey of Hours and Earnings (ASHE), Office for National Statistics

292.Many witnesses pointed to the fact that the European Commission recommends a threshold of 50 employees for gender pay gap reporting. The higher threshold of 250 employees is only suggested if member states are adopting a requirement for full equal pay audits (see below), which are considerably more onerous that publishing a single gender pay gap figure. The EHRC points to evidence from other European suggesting that lower thresholds may not be “too burdensome”:220

In Sweden businesses with 25 or more employees have to conduct an equality action plan every three years, which has contributed to a gender pay gap of only 3% for women working in male dominated occupations

In Austria companies with more than 150 employees must provide gender pay gap information every other year to employees, detailing the pay gap for each occupational group or pay grade

In Finland, the Equality Act requires employers with more than 30 staff to produce an equality plan to share with employees every other year. This plan must include a pay survey, reporting the gender pay gap within job roles and pay grades.

293.Closer to home, in Wales and Scotland public sector organisations with more than 150 employees are already obliged to publish gender pay gap data under the Public Sector Equality Duty. In January 2016, the Scottish Government put regulations before the Scottish Parliament to reduce this threshold further to public authorities with more than 20 employees. These organisations would be subject to more detailed reporting regulations than those proposed by the UK Government. Since 2013 public authorities in Scotland with more than 150 employees have been required to publish the percentage difference between men and women’s hourly pay within their organisation. They are also required to publish their policy on equal pay on the basis of gender, disability, and ethnicity, together with information on occupational segregation in particular grades and roles.

294.The Government has already announced that it will be extending reporting regulations to the public sector. It is likely the threshold for these regulations will be set at 150 employees, consistent with the Public Sector Equality Duty. If this is the case, there will be inconsistency between the thresholds for public and private sector reporting regulations. Given that the private sector has a higher gender pay gap than the public sector, this is difficult to justify.

295.A number of organisations including the CBI; the EEF (the manufacturers association); the Institute of Chartered Accountants in England and Wales; the Charted Management Institute; and the Chartered Institute of Personnel and Development said the threshold should remain at 250.

296.The main argument made against reducing the threshold to organisations with fewer than 250 employees is the administrative burden this would place on smaller organisations. In evidence submitted prior to the publication of the draft regulations, the CBI pointed out that one of its members, which employs 22,000 people, “will find it challenging to cater to increased data requests in gender pay gap reporting. A smaller business would likely struggle hugely to try and match this capability, and would find it a considerable resource burden to comply with similar reporting rules.”221

297.Another reason given for not lowering the threshold is the risk of disclosing individuals’ salaries in smaller organisations. Whilst this would certainly be a risk with more detailed reporting figures, it seems unlikely to be the case if just a mean and median figure are produced for organisations with more than 50 employees.

298.The Government’s explanation for the threshold stems from Section 78 of the Equality Act 2010, which limits reporting requirements to companies with at least 250 employees. It says this figure had cross-party support in Parliament and in the business community. However, the Secretary of State acknowledged that the current threshold was a starting point:

It is important to start somewhere … In everything we do in terms of placing regulation on business, we have to think very carefully about the balance between achieving our aim—which in this case is tackling the gender pay gap—and, as we all know as constituency Members of Parliament, smaller businesses that frankly want to get on and run their businesses and are concerned about the costs of compliance. By first demonstrating that this is not an onerous reporting requirement—it is possible to do with software that companies already have—we would take that look to see whether that should be extended.222

299.The question of how onerous the regulations would be on smaller organisations was debated by the witnesses we heard from. According to Michael Newman:

Any company that has electronic payroll software, which is the majority of modern employers, has the ability to have gender reporting, because it should be simply pressing a button on a computer that enables people to do this. I am not sure that it needs or requires a large HR department or those sorts of resources, which would be a justification for limiting it to bigger companies.223

But Tim Thomas strongly disagreed with this analysis:

The idea that you click a mouse and it is done, quite frankly, does not bear any reality with our members who have been modelling this. You do not press a button and get the gender pay gap … At the top end, one of our members has 750 pay metrics, which do not fit into the model ONS calculation that I have. At the bottom end, we have smaller businesses with 50 pay metrics. You cannot just press a button: what are the 50 pay metrics?224

300.One suggestion, proposed by Duncan Brown, was to begin with larger companies and then move more quickly to include those with fewer than 250 employees. This has is how the introduction of pension auto-enrolment was dealt with. Mr Brown pointed to evidence that, with the right support, organisations in other European countries could cope with these regulations:

If Italy can do it with 100 [employees], Finland can do it with 30 and the Netherlands can provide software to help small employers, and Germany and Austria similarly, I do not see why we cannot do that as well.225

301.The current threshold of 250 employees only covers 34% of the workforce and excludes smaller organisations which have larger gender pay gaps. It is also inconsistent with the Public Sector Equality duty which applies to organisations with 150 employees. There is international evidence that, with support, smaller organisations can be helped to produce and understand their gender pay gaps.

Alternative measures to increase transparency

Equal Pay Audits

303.An equal pay audit involves comparing the pay of protected groups who are doing equal work in an organisation, investigating the causes of any pay gaps and then making plans to close them. It is concerned with equal pay, rather than the gender pay gap as the EHRC website makes clear:

An equal pay audit is the most effective way of establishing whether your organisation is providing equal pay and rewarding employees fairly in practice, and is an effective demonstration of action to promote equal pay under the terms of the equality duties. It provides a risk assessment tool for pay structures.226

305.Helen Fairfoul from the Universities and Colleges Employers Association told us that equal pay audits had played an important role in reducing the gender pay gap in the higher education sector:

[Equal pay auditing] has been embedded as habitual practice in the HE sector for many years now … It is a starting point for an employer to have an interest and to be prepared to do the analysis, to look at where there are discrepancies, and to ask questions.227

306.Equal pay audits can be a useful tool for organisations to analyse the relative positions of men and women. They can also be costly and time consuming so we would not recommend them being mandatory. However, expertise that exists around equal pay audits could be successfully be used by organisations looking for ways to take action on their gender pay gap.

Equal Pay Questionnaires

307.Equal Pay Questionnaires were included in section 138 of the Equality Act. They allowed employees to put questions to their employer through a form in order to ascertain whether they had been subject to unlawful discrimination. The questionnaire focused on establishing whether a woman was receiving less favourable pay, or terms and conditions, than a male colleague or colleagues. It also asked for information on whether the employer agreed that the woman and her comparator were doing equal work. There was no legal obligation on the employer to respond, but an employment tribunal could draw an adverse inference from an employer’s failure to answer, or from an evasive or equivocal answer.

308.Following a public consultation exercise in October 2012, the Coalition Government decided abolish the questionnaire. Abolition was opposed by 83% of respondents to the consultation. However, all business representative organisations supported repeal.

309.In the response to the consultation, the Government set out its concerns about the questionnaires:

Our concerns about the procedures for obtaining information provisions are that they had not succeeded in increasing pre-hearing settlements and reducing tribunal loads, and that they had resulted in a burden for employers amounting, in the only quantified evidence available, to some 45,000-60,000 employee hours a year.228

The repeal took effect on 6 April 2014.

310.Several organisations responding to our inquiry, including the TUC , Women’s Budget Group and the National Union of Teachers, called for these questionnaires to be reinstated. Duncan Brown explained why he supported this idea:

In my personal experience of helping two people fill it in, it took us an hour. In one case, it stimulated an equal pay audit and in the other one it led to the female member of staff getting a significant increase. To me, it is relatively light touch. If people do not want to use it, it is there, but they will not use it; if they do, they do. I could not see the logic for taking it away, so I very much support its replacement.229

311.Equal Pay Questionnaires are a simple and cost effective way for employees to gather information about whether they are being paid fairly. As such they have potential to add to the Government’s aim of increasing pay transparency.

Recommendations

312.The Government should amend its draft reporting regulations so that gender pay gap data is broken down by age and also part-time status.

313.The Government should include all organisations with 150 employees or more within the gender pay gap reporting regulations. Within two years of the regulations commencing, organisations with more than 50 employees should be included.

314.We also suggest that the Government should produce a strategy for ensuring employers use gender pay gap reporting as a first step for taking action rather than an end in itself. This strategy should be published a year before the regulations commence.